A Comparison of Direct and Iterated Multistep AR Methods for Forecasting Macroeconomic Time Series
Abstract“Iterated” multiperiod ahead time series forecasts are made using a one-period ahead model, iterated forward for the desired number of periods, whereas “direct” forecasts are made using a horizon-specific estimated model, where the dependent variable is the multi-period ahead value being forecasted. Which approach is better is an empirical matter: in theory, iterated forecasts are more efficient if correctly specified, but direct forecasts are more robust to model misspecification. This paper compares empirical iterated and direct forecasts from linear univariate and bivariate models by applying simulated out-of-sample methods to 171 U.S. monthly macroeconomic time series spanning 1959 – 2002. The iterated forecasts typically outperform the direct forecasts, particularly if the models can select long lag specifications. The relative performance of the iterated forecasts improves with the forecast horizon.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 285.
Date of creation: 2005
Date of revision:
Contact details of provider:
Postal: via Rontgen, 1 - 20136 Milano (Italy)
Web page: http://www.igier.unibocconi.it/
Other versions of this item:
- Marcellino, Massimiliano & Stock, James H. & Watson, Mark W., 2006. "A comparison of direct and iterated multistep AR methods for forecasting macroeconomic time series," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 499-526.
- Marcellino, Massimiliano & Stock, James H & Watson, Mark W, 2005. "A Comparison of Direct and Iterated Multistep AR Methods for Forecasting Macroeconomic Time Series," CEPR Discussion Papers 4976, C.E.P.R. Discussion Papers.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
- E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-03-20 (All new papers)
- NEP-ECM-2005-03-20 (Econometrics)
- NEP-ETS-2005-03-20 (Econometric Time Series)
- NEP-MAC-2005-03-20 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Flint Brayton & John M. Roberts & John C. Williams, 1999. "What's happened to the Phillips curve?," Finance and Economics Discussion Series 1999-49, Board of Governors of the Federal Reserve System (U.S.).
- Schorfheide, Frank, 2005. "VAR forecasting under misspecification," Journal of Econometrics, Elsevier, vol. 128(1), pages 99-136, September.
- Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December.
- Kenneth D. West, 1994.
"Asymptotic Inference About Predictive Ability,"
- Andrew Ang & Monika Piazzesi & Min Wei, 2004.
"What Does the Yield Curve Tell us about GDP Growth?,"
NBER Working Papers
10672, National Bureau of Economic Research, Inc.
- Ang, Andrew & Piazzesi, Monika & Wei, Min, 2006. "What does the yield curve tell us about GDP growth?," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 359-403.
- Andrew Ang & Monika Piazzesi & Min Wei, 2003. "What does the yield curve tell us about GDP growth?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
- Chang-Jin Kim & Charles R. Nelson, 1999. "Has The U.S. Economy Become More Stable? A Bayesian Approach Based On A Markov-Switching Model Of The Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 608-616, November.
- Guillaume Chevillon & David F. Hendry, 2004.
"Non-Parametric Direct Multi-step Estimation for Forecasting Economic Processes,"
2004-W12, Economics Group, Nuffield College, University of Oxford.
- Chevillon, Guillaume & Hendry, David F., 2005. "Non-parametric direct multi-step estimation for forecasting economic processes," International Journal of Forecasting, Elsevier, vol. 21(2), pages 201-218.
- David Hendry & Guillaume Chevillon, 2004. "Non-Parametric Direct Multi-step Estimation for Forecasting Economic Processes," Economics Series Working Papers 196, University of Oxford, Department of Economics.
- Weiss, Andrew A., 1991. "Multi-step estimation and forecasting in dynamic models," Journal of Econometrics, Elsevier, vol. 48(1-2), pages 135-149.
- Todd E. Clark & Michael W. McCracken, 1999.
"Tests of equal forecast accuracy and encompassing for nested models,"
Research Working Paper
99-11, Federal Reserve Bank of Kansas City.
- Clark, Todd E. & McCracken, Michael W., 2001. "Tests of equal forecast accuracy and encompassing for nested models," Journal of Econometrics, Elsevier, vol. 105(1), pages 85-110, November.
- Todd E. Clark & Michael W. McCracken, 2000. "Tests of Equal Forecast Accuracy and Encompassing for Nested Models," Econometric Society World Congress 2000 Contributed Papers 0319, Econometric Society.
- Todd E. Clark & Michael McCracken, 1999. "Tests of Equal Forecast Accuracy and Encompassing for Nested Models," Computing in Economics and Finance 1999 1241, Society for Computational Economics.
- Gabriel Perez-Quiros & Margaret M. McConnell, 2000.
"Output Fluctuations in the United States: What Has Changed since the Early 1980's?,"
American Economic Review,
American Economic Association, vol. 90(5), pages 1464-1476, December.
- Margaret McConnell & Gabriel Perez Quiros, 2000. "Output fluctuations in the United States: what has changed since the early 1980s?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
- Margaret M. McConnell & Gabriel Perez Quiros, 1997. "Output fluctuations in the United States: what has changed since the early 1980s?," Research Paper 9735, Federal Reserve Bank of New York.
- Margaret M. McConnell & Gabriel Perez Quiros, 1998. "Output fluctuations in the United States: what has changed since the early 1980s?," Staff Reports 41, Federal Reserve Bank of New York.
- Kang, In-Bong, 2003. "Multi-period forecasting using different models for different horizons: an application to U.S. economic time series data," International Journal of Forecasting, Elsevier, vol. 19(3), pages 387-400.
- Guillaume Chevillon, 2005.
"Direct multi-step estimation and forecasting,"
Documents de Travail de l'OFCE
2005-10, Observatoire Francais des Conjonctures Economiques (OFCE).
- Ing, Ching-Kang, 2003. "Multistep Prediction In Autoregressive Processes," Econometric Theory, Cambridge University Press, vol. 19(02), pages 254-279, April.
- Clements, Michael P. & Hendry, David F., 1996.
"Multi-Step Estimation for Forecasting,"
The Warwick Economics Research Paper Series (TWERPS)
447, University of Warwick, Department of Economics.
- Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-62, April.
- Schwert, G. William, 1987. "Effects of model specification on tests for unit roots in macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 73-103, July.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.